Core TSIs : Lease Accounting : Working with lease accounting : Using contract currencies and functional currencies : Adding currencies, currency pairs and exchange rates : Calculation example spot rate - average rate
Calculation example spot rate - average rate
You open a new office in Boston and start a lease for 15,000 USD per month, for 4 years. The discount rate in the lease is 4%, there are no rent-free periods or other lease related costs.
At start date of the contract, the spot rate USD/EUR is 0.858134. The average rate is 0.857502 for the first reporting period.
At the start of the lease, the right-of-use asset is calculated based on the present value of the lease payments: 665,274.97 USD with a monthly depreciation of 13,859.90 USD.
At the start of the lease, the liability asset is calculated based on the present value of the lease payments: 665,274.97 USD.
The interest component is calculated (0.3274% monthly interest = 2,177.94 USD interest in the first month) which leads to a (15,000 USD – 2,177.94 USD = 12,822.06 USD) amortization for the first month.
Based on the spot rate, the right-of-use asset is calculated into 570,895.07 EUR at start of the period with a monthly depreciation of 11,893.65 EUR.
Based on the spot rate, the liability is calculated into 570,895.07 EUR at the start of the period.
Based on the average rate, the interest component is calculated as 1,868.98 EUR in the first month.
Based on the spot rate, the payment is calculated as 12,872.01 EUR in the first month, which leads to a (12,872.01 EUR – 1,867.59 EUR = 11,004.42 EUR) amortization for the first month. The difference of 1.37 EUR caused by differences in spot rate and average rate will be booked by Planon as Forex – gain / loss.